MIAMI, Aug 14 (Reuters) - A Miami jury on Tuesday ordered accounting firm BDO Seidman to pay $351.7 million in punitive damages on top of $170 million in compensatory damages in a fraud-related lawsuit brought by Portuguese bank Banco Espirito Santo (BES.LS: Quote, Profile, Research).
"We're gratified with the jury's verdict holding BDO responsible for violating the public trust," Espirito Santo's lead attorney, Steven Thomas, said.
BDO Seidman had warned the court that piling more damages on top of the $170 million in compensation would hurt the firm and said it was confident it could overturn the verdict on appeal.
"This is merely an interim decision in an extended process ... The process will take years," BDO Seidman Chief Executive Jack Weisbaum said after the punitive damages were announced.
Weisbaum told Reuters it was always prudent for a company facing a legal judgment to set aside reserves in case an appeal failed.
"But certainly given the size of the verdict it's a lot to set aside," he said.
Espirito Santo sued BDO Seidman because of its involvement with Miami-based E.S. Bankest and its audits from 1998 through 2002. Bankest, a so-called factoring firm, went under after its officers were indicted for fraud in late 2003.
The company's former president, Hector Orlansky, was sentenced earlier this month to 20 years in prison for bank fraud and money laundering and ordered to pay $165 million in restitution to Banco Espirito Santo.
The jury found BDO Seidman responsible for "gross negligence" in June and awarded compensatory damages of $170 million on Monday. Compensatory damages represent payment for economic losses as a result of the jury's finding of wrongdoing.
On Tuesday, the jury awarded the additional $351.7 million in punitive damages despite testimony from Weisbaum that the Chicago-based firm would have trouble paying.
"It (BDO) could not pay punitive damages," Weisbaum said in the Miami court after being questioned about the company's recent financial results and a balance sheet showing its net worth, at the end of fiscal year 2006, at just $40.5 million.
He said the firm had about 2,800 U.S.-based employees in 34 offices across the United States.
Now-defunct Bankest was a factoring company created by Espirito Santo and Bankest Capital Corp. in 1998. Factors buy other firms' accounts receivable at a discount, then collect the bills and keep the difference.
Espirito Santo and two of its subsidiaries alleged that BDO Seidman negligently failed to uncover fraud at the company that the bank blamed for a $170 million loss.
During the trial in Miami-Dade County Circuit Court, Espirito Santo argued that as Bankest's auditor, BDO Seidman overlooked or turned a blind eye to problems at a Bankest business partner, StrataSys Group LLC, because BDO was itself a partner in the other company.
"We proved to you that this was an important case because it wasn't just about a lot of money," Thomas, the lawyer for Espirito Santo, told the jury in his closing arguments on Tuesday.
"It was about a public duty, a public trust vested in BDO Seidman," Thomas said.
"In this case the public trust was violated," he added.